Enviroiiiiieiital
EFAB
Robert Lenna
Chair
John Wise
Executive Director
Members
Hon. Pete Domenici
George Butcher
Pete Butkus
Michael Curley
Michael Deane
Linda Descano
Peter Emerson
Deeohn Ferris
Shockley Gardner
Evan Henry
Anne Pendergrass Hill
Stephen Mahfood
Langdon Marsh
John McCarthy
George Raftelis
Arthur Ray
Heather Ruth
Sonia Toledo
Jim Tozzi
Mary Ellen Whitworth
Robin Wiessmann
Joseph Young
Elizabeth Ytell
Expediting the Clean-Up and Redevelopment of
Brownfields: Addressing the Major Barriers to
Private Sector Involvement — Real or Perceived
REPORT
This report has not been reviewed for approval by the U.S. Environmental Protection
Agency; and hence, the views and opinions expressed in the report do not necessarily
represent those of the Agency or any other agencies in the Federal Government.
December 1997
Printed on Recycled Paper
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Environmental Financial Advisory Board
DEC
Honorable Carol M. Browner
Administrator
U.S. Environmental Protection Agency
Washington, D.C. 20460
Dear Administrator Browner:
On behalf of the Environmental Financial Advisory Board (the Board or EFAB), we
are pleased to transmit to you our latest report, Expediting the Clean-Up and Redevelopment
of Brownflelds: Addressing the Major Barriers to Private Sector Involvement — Real or
Perceived.
This report identifies what we believe are the major barriers (legal, financial, practical,
real or perceived) that currently discourage or impede the private sector from participating in,
and investing financial resources in the clean-up and redevelopment of, sites that are, or are
potentially subject to, the legal jurisdiction of the Federal Superfund program pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
The report focuses on four concerns that we found were most frequently identified by
the private sector (e.g., real estate developers, bankers) as barriers to participation in the
redevelopment of "Brownflelds" sites:
» Crucial Linked Issues: Delineating States' and EPA's Roles, and
Determining Feasible Clean-Up Standards.
+ Protecting Against Liability for Third-Party Claims.
» Utilizing Available Federal Financial Incentives.
»• Obtaining Priority Clean-Ups.
Major recommendations in the report include:
* EPA should take an expansive view of the categories or types of sites that could
come within the "Brownfield" concept. The term "Brownfield" should include
any site (whether urban or rural, industrial or non-industrial, abandoned, idled,
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under-used, or previously undeveloped) at which the timely use, expansion of
the current usage, or redevelopment of the site is prevented by real or suspected
environmental contamination — regardless of the actual severity of any
contamination. The term "Brownfield" even may include appropriate sites
sufficiently contaminated to be placed on the National Priorities List (NPL).
* EPA should encourage all regions to follow Region V's lead in entering into
State Memoranda of Agreement (SMOA) which give the State the lead role in
addressing the many sites that are not sufficiently contaminated to be placed on
the National Priority List under the Superftmd program.
* EPA should issue a clear policy statement that, on entering into a SMOA, EPA
will honor a State's certification that a site has been adequately cleaned up.
Each SMOA should specify as clearly as possible the circumstances under which
EPA will "re-open" or intervene in the State's supervision of particular sites.
* EPA should encourage the development and use of risk-based clean-up
standards to the maximum extent possible under current legal authority.
* EPA should encourage the use of no-action letters, "comfort letters", and
similar legal or quasi-legal documents, especially at the State level, to reduce
the likelihood that a third party may file a lawsuit that implicates the sufficiency
of the clean-up standards or the planned remedial activities.
* State environmental agencies should utilize similar legal or quasi-legal
documents for Brownfields clean-ups where the clean-up is conducted according
to State standards and overseen by the State rather than EPA.
* EPA should provide financial assistance as needed to States that seek to develop
and implement "model" comfort letters and similar documents.
* EPA should evaluate the various options for using available Federal funding,
including EPA funding, for Brownfields purposes. EPA should allocate its
funding in the most economically efficient manner feasible. EPA funding should
be used to leverage other sources of funding, to obtain "the most bang for the
buck" in promoting and achieving environmental clean-up and opportunities for
economic redevelopment.
* EPA should pursue partnership efforts with the U.S. Department of Housing and
Urban Development (HUD), the Economic Development Administration (EDA)
in the U.S. Department of Commerce, and with the U.S. Departments of Labor
and Transportation, to coordinate, target, and leverage Federal funding and
other incentives for Brownfields redevelopment.
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* EPA should encourage State and local governments to establish coordinated,
"fast track" review and approval processes for redevelopment projects on
Brownfields sites. EPA should amend its criteria for awarding Brownfields
demonstration grants to give some preferential consideration to cities or towns
that have some type of "fast track" process to facilitate crucial decisions and
issuance of crucial permits.
The Board requests that this report initiate an ongoing interaction between the Board
and EPA policy-level management regarding Brownfields issues. To that end, we respectfully
ask you to designate a senior EPA official to discuss with the Board EPA's reactions to the
recommendations in the report.
I want to take this opportunity to thank Evan Henry, Chair of the Brownfields
Workgroup, for his leadership in producing this report. We appreciate the opportunity to
assist EPA in its work, and look forward to a continuing dialogue with EPA regarding how to
facilitate Brownfields clean-up and redevelopment.
Sincerely,
Robert O. Lenna
Chair, Environmental Financial
Advisory Board
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Expediting the Clean-Up and Redevelopment of Brownfields:
Addressing the Major Barriers to Private Sector Involvement -
Real or Perceived
TABLE OF CONTENTS
PRINCIPAL OBJECTIVES OF Tffls PAPER i
BARRIER # i: CRUCIAL LINKED ISSUES: DELINEATING STATES' AND EPA's ROLES,
AND DETERMINING FEASIBLE CLEAN-UP STANDARDS 1
The Perceived Problem 1
Discussion and Remedy 1
1. Delineating States' and EPA's Roles: Memoranda of
Agreement with States 1
2. Implement Risk-Based Corrective Action as an
Available Option 2
Addressing Feasible Clean-Up Standards Through New Legislation 4
1. Delineating States' and EPA's Roles: Memoranda of
Agreement with States 4
2. Implement Risk-Based Corrective Action as an
Available Option » 4
BARRIER #2: PROTECTING AGAINST LIABILITY FOR THRO-PARTY CLAIMS 5
The Perceived Problem 5
Discussion and Remedy 5
Addressing Potential Liability to Third Parties Through New Legislation 8
BARRiER#3: UTILIZING AVAILABLE FEDERAL FINANCIAL INCENTIVES 9
The Perceived Problem 9
Discussion and Remedy 9
"Up Front" Federal Financial Incentives 9
1. Funding Through EPA 9
2. Other EPA "Financial" Functions: Coordinating, Leveraging,
Educating 10
3. Reaching Private Financial Sources: Federal Banking
Regulatory Agencies 12
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TABLE OF CONTENTS fCON"T>
4. Near-Term Tax Benefits 12
Long-Term Financial Incentives 14
Addressing Federal Financial Incentives Through New Legislation 14
BARRiER#4: OBTAINING PRIORITY CLEAN-UPS 15
The Perceived Problem 15
Discussion and Remedy 15
Addressing Obtaining Priority Clean-Ups Through New Legislation 16
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PRINCIPAL OBJECTIVES OF THIS PAPER
1. Identify the major barriers (whether legal, financial, practical, real or perceived) that
currently discourage or impede the private sector from becoming involved in, and
investing financial resources in the clean-up and redevelopment of, sites that are, or
are potentially subject to, the legal jurisdiction of the Federal "Superfund" program
pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA).
• In this paper, the term "Brownfield" includes any site (whether urban or rural,
industrial or non-industrial, and whether abandoned, idled, under-used, or
previously undeveloped) at which the timely use, expansion of current usage, or
redevelopment of the site is prevented by real or suspected environmental
contamination -- regardless of the actual severity of any contamination.
• Thus, in this paper, the term "Brownfield" may include appropriate sites that are
sufficiently contaminated to be placed on the National Priorities List (NPL), or
portions of such sites, or sites on the NPL because of special circumstances such
as being located above a contaminated aquifer that is on the NPL.
• Also, the term "Brownfield" can include previously-undeveloped land, for
example, if use or development is deterred because the property is believed to be
contaminated because it is adjacent to a contaminated property or it is believed to
be the site of improper dumping.
2. Identify program reforms that EPA can implement pursuant to existing legal
authorities (i.e., without seeking statutory amendments), which will encourage,
facilitate, or expedite private sector participation in the clean-up and redevelopment of
suitable sites.
• Also set forth certain recommendations that EPA does not have power itself
to implement, for example:
Recommendations that will require statutory amendments;
Recommendations for actions that depend heavily upon satisfactory
participation or implementation by other Federal agencies or State/
municipal governments, for which EPA should use its "good offices",
within the Administration and with the States, to urge or prod other
agencies to act favorably towards encouraging private sector participation
in Brownfields redevelopment.
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3. Discuss those barriers and suggested reforms and remedies in a plain-English format
that can be used to educate various constituencies. The target audiences are both
inside and outside the EPA and State environmental agencies. The paper seeks also to
inform audiences not conversant with the jargon of "Superfund" and environmental
liability (i.e., the commercial real estate and banking communities, the press, most
Members of Congress, and most Congressional staff).
4. Initiate an ongoing interaction between the Environmental Financial Advisory
Board (the Board) and EPA policy-level management regarding Brownfields issues.
Formally ask Administrator Browner to provide the Board with a detailed reply to the
recommendations set forth in this report.
Also request that EPA advise the Board periodically regarding the Agency's
implementation of its Brownfields program. Matters upon which the Board maintains
a continuing interest include:
The number and identity of the States with which EPA has entered into State
Memoranda of Agreements (SMOAs);
Which States employ risk-based corrective action in their State clean-up programs,
and which offer a redeveloper a choice of proceeding with a risk-based action or a
pre-established set of clean-up standards; and
EPA's ongoing efforts, (a) to energize other Federal agencies to focus on
Brownfields redevelopment as a priority, and (b) to educate the private sector
regarding available governmental financial incentives for private investment in
Brownfields redevelopment projects.
Since this report is intended to be a means to an end, not an end in itself, request
that EPA assist in setting up several "Brownfields progress report" hearings to be
held under the joint auspices of the Board, interested EPA regions, and interested States.
These regional hearings should be used to "showcase" EPA's Brownfields promotional
efforts, including EPA resources that are available to the public, such as the "Outreach"
staff in OSWER, the Great Lakes Environmental Finance Center at Cleveland State
University, and EPA's Internet site for Brownfields.
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BARRIER # 1: CRUCIAL LINKED ISSUES: DELINEATING STATES' AND EPA's ROLES,
AND DETERMINING FEASIBLE CLEAN-UP STANDARDS
The Perceived Problem:
The stringency of EPA Superfund clean-up standards is often cited as a major impedient
to the clean-up and redevelopment of Brownfields sites. (Contaminated sites that are remediated
under the Superfimd program must meet standards known as "ARARs", "applicable or relevant
and appropriate requirements". Also, CERCLA includes a strong preference that the remedial
action be in the form of treatment to actively eliminate the contaminants or reduce them to the
level specified in the ARAR for each contaminant.) Prospective redevelopers assert that the cost
of meeting the stringent standards makes, or may make, the project economically infeasible.
(Whether the cost of clean-up dominates the decision to proceed with a particular project is a
project-specific matter; numerous other factors also significantly affect the "go - no go"
decision.)
The stringent Superfund standards and preference for active treatment may be appropriate
for cleaning up sites that are heavily contaminated and near residential areas where uncontrolled
human exposure is likely. However, Superfund standards are perceived as inappropriate for many
Brownfields sites that are not, or may not be, seriously contaminated and where human and
environmental exposure can be limited through various mechanisms. Yet, CERCLA and the
Superfund program as implemented provide little or no flexibility to set alternative clean-up
standards based on reasonable distinctions among the levels of risk at each site (i.e., based upon
the severity of the contamination, fate and effects information, and the likelihood of human or
environmental exposure to the contamination).
A directly related problem is whether a clean-up standard will change in mid-project,
particularly if the project begins under State supervision and then EPA intervenes.
Discussion and Remedy:
EPA may facilitate the clean-up and redevelopment of Brownfields sites through two
interrelated actions.
1. Delineating States' and EPA's Roles: Memoranda of Agreement with States
First, we recommend that EPA encourage all regions to follow Region V's lead in
entering into State Memoranda of Agreement (SMOA) which give the State the lead role in
addressing the many sites that are not sufficiently contaminated to be placed on the National
Priority List under the Superfund program.
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We oho recommend that EPA issue a clear policy statement that, upon entering into a
SMOA, EPA will honor a State's certification that a site has been adequately cleaned up.
Each SMOA should specify as clearly as possible the circumstances under which EPA will
"re-open" or intervene in the State's supervision of particular sites. We suggest that each
SMOA say that clean-up at Brownfields-type sites will be subject to State supervision unless
EPA first determines that: (l)(a) an "imminent and substantial danger to the public health or
the environment" demonstrably exists, and (l)(b) the State has refused to take action; or (2)
the State has requested EPA to intervene. However, we believe the existence of a "bright
line" in the SMOA regarding the specific circumstances under which EPA will "re-open " its
potential involvement in a site is of paramount importance. The private sector can make
investment decisions and structure a real estate "deal" around clean-up standards of whatever
stringency (some standards will be deal-killers, some will not). Hmvever, the circumstances
under which the clean-up standards may change after the "deal" is struck must be clearly
delineated or else the redevelopment "deal" will not happen in the first instance, due to the
perceived uncontrollable risk that EPA will "move the goal posts" in the middle of the game.
The "re-openers" authorizing EPA intervention at individual sites must be as clear and as
limited as possible, if EPA, the Federal Government, States, and cities want to encourage
private investment in Brownfields redevelopment.
Providing States and the redevelopment community with clearer guidance regarding the
circumstances under which EPA may override or side-step a SMOA and intervene at a State-
supervised clean-up site is crucial.
We view this recommendation as consistent with that stated in the Board's letter to
Administrator Browner dated March 31,1997, to "fejncourage and expand delegation of
authority to State agencies to eliminate the uncertainties of multiple agency involvement"
We recognize EPA has legal responsibilities under CERCLA and other Federal law that likely will
preclude EPA from categorically disavowing any potential EPA involvement at a site; therefore,
it is crucial that EPA adopt policies that clearly cede the lead role to the States (at least at non-
NPL sites) and clearly specify the circumstances under which EPA will assert its jurisdiction at a
State-lead clean-up site. For the redevelopment community, being able to identity in advance the
circumstances under which EPA may intervene (and the clean-up standards may become more
stringent) is as important as the actual substance of the clean-up standards to be applied.
We also note that the lack of an EPA-State SMOA in any particular State likely will add
to the uncertainty or "discomfort level" expressed by the private redevelopment community
regarding participation in Brownfields redevelopment in that State.
2. Implement Risk-Based Corrective Action as an A vailable Option
Secondly, we recommend that EPA encourage the development and use of risk-based
clean-up standards to the maximum extent possible under current legal authority. We also
urge EPA and States to recognize that, in certain time-sensitive Brownfields redevelopment
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projects involving private investment, there may be advantages to allowing regulatory
flexibility to a redeveloper to choose between: (1) proceeding immediately to meet pre-
established State-wide standard (fixed) clean-up standards deemed to be universally
protective; and (2) going through the sometimes-lengthy process of determining protective,
site-specific, risk-based clean-up standards. We recommend that EPA and the States strive to
provide clean-up decision processes that recognize the need for both: (1) protection of human
health and the environment; and (2) timely decisions in projects involving private investment.
We view this recommendation as consistent with that stated in the Board's letter to
Administrator Browner dated March 31, 1997, to "fresolve legal and transactional
uncertainties associated with use of Risk-Based Corrective Action (RBCA),"
In the risk-based approach to clean-up, the intended future land use at the site is a major
determining factor in the risk-assessment process, the establishment of clean-up standards, and the
selection of the technical remedy in the clean-up.
For example, the American Society for Testing Materials' (ASTM) Risk-Based Corrective
Action (RBCA) framework provides a possible "tiered" risk assessment approach in which risk
levels and other variables, including exposures anticipated at the site based on expected future
uses, can be "plugged in" to determine sufficiently protective clean-up standards and
corresponding remedial actions on a site-specific basis. Risk-based standards also may allow the
use of engineering controls and institutional controls in some instances in lieu of active, technical
clean-up measures.
Although we take no position on adoption of any particular RBCA standards and
framework, we urge EPA generally to allow use of risk-based clean-up standards if such
standards both:
1. Offer greater opportunity for an economically feasible clean-up, facilitating the
return of the property to productive use; and
2. Maintain reasonable assurance that human health and the environment will be
protected, by assuring that the clean-up selected: (a) eliminates acute risks, (b)
precludes any significant future human exposure, perhaps through use of
institutional controls, and (c) assures that any contaminants remaining on-site will
not migrate during the time frame when they may pose any significant risk.
We believe that using appropriately-implemented risk-based standards is sound national
policy. In virtually every Brownfields project scenario, the absence of a viable redevelopment
project results in the perpetuation of two environmentally undesirable trends: (1) urban decay
(environmentally, and further deterioration of existing taxpayer-paid infrastructure, and lack of
economic opportunity for nearby residents); and (2) destruction of "Greenfields" to build
development that could locate on Brownfields sites.
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In our view, those two undesirable trends are not sustainable in the long term as a matter
of national environmental or economic policy. We believe that requiring clean-ups to meet
appropriately-protective risk-based standards will both: (1) protect the public health and the
environment; and (2) help to avoid the perpetuation of those two environmentally undesirable
trends.
Addressing Feasible Clean-Up Standards Through New Legislation:
/. Delineating States' and EPA's Roles: Memoranda of Agreement with States
There may always be States with which EPA does not have a SMOA setting forth the
circumstances in which EPA may "re-open" or intervene in a State's supervision of clean-up of
particular sites (for example, pursuant to a State voluntary clean-up program). With regard to
such "non-SMOA" States, new Federal legislation setting forth (1) the circumstances in which
EPA must recognize a clean-up completed through a State voluntary clean-up program, and (2)
the circumstances in which EPA could "re-open" or intervene at that site, would provide the
private redevelopment community with some assurances and thus would increase opportunities
for private participation in clean-up and redevelopment of Brownfields.
It may be necessary to include in such legislation the criteria that an "acceptable" State
voluntary clean-up program must meet before EPA would be obligated to honor the State's
finding that the site has been acceptably cleaned-up or is being acceptably addressed by an
ongoing, long-term remedial action.
It also may be necessary to limit the authority of the Department of Justice to either
intervene, or to compel EPA to intervene, at any site that is being cleaned up pursuant to an
"acceptable" State voluntary clean-up program, unless an "imminent and substantial danger to the
public health or the environment" demonstrably exists, and the State has refused to take action.
2. Implement Risk-Based Corrective Action as an A variable Option
If EPA determines that the agency needs new legal authority to use — or to allow State
agencies (pursuant to SMOAs, or otherwise) to use - risk-based clean-up standards at any site
that is, or potentially is, subject to clean-up pursuant to Superfund program standards, then EPA
should seek explicit statutory authority from the Congress.
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BARRIER # 2: PROTECTING AGAINST LIABILITY FOR THIRD-PARTY CLAIMS
The Perceived Problem:
Redevelopers, their financial backers, or other major participants in a Brownfields
redevelopment may incur liability to a third party that claims to be injured in some manner
(whether personal injury or diminution of value of adjoining property) by contaminants that
originate on the Brownfields site.
Discussion and Remedy.
Major participants in a Brownfields project will have several distinct concerns about
possible liability — from several sources. In some but not all instances, a redeveloper (and
perhaps other associated financial stakeholders) can obtain, from Federal and State government
officials, an appropriate release from possible liability to the government or clarification of
potentially-disputable legal or factual matters. These releases or clarifications may be
incorporated into "prospective purchaser agreements", "covenants-not-to-sue", "no-action
letters", "comfort letters", and the like. These documents likely will be tailored to the specific
facts of the specific site, and likely will be contingent upon the redeveloper adhering to certain
specific conditions or commitments.
Accordingly, such documents may provide some legal comfort to the major Brownfields
participants, but they may not always be available on acceptable terms, they are not uniform from
site to site, and they provide comfort only against possible liability to the Federal and/or State
governments who co-sign the agreement.
If a Brownfields redevelopment participant was in some way legally liable for the original
contamination at the site, it may be possible to enter into a CERCLA settlement with the EPA,
which can provide protection against claims by third parties for further financial contribution
towards clean-up of the site. Similar protection may be available under corresponding "State
Superfund" laws.
New statutory provisions (in Public Law 104-208) insulate financial institutions from
liability unless they become active managers of the property in which they hold a security interest.
This statutory protection should help to alleviate certain concerns that lenders have had about
potential CERCLA liability since the Fleet Factors decision in 1990.
The legal mechanisms described above can: (1) provide some security to the redeveloper
and its financial partners regarding the circumstances in which the Federal and/or State
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government agrees not to intervene with the redevelopment project; and (2) provide protection
against clean-up contribution claims by third parties.
However, one type of third-party liability evidently poses a special concern. No legal
mechanism exists at present (at either the Federal or State level) to totally insulate the
redeveloper, its financial backers, or other major participant in a Brownfields redevelopment from
possible liability to a third party who claims to be injured by contaminants that originate on
the Brownfields site. Such an injured third party may exercise legal rights under CERCLA or
applicable State law to seek damages or another remedy against the redeveloper.
We do not suggest that "total insulation" against liability is necessary or even appropriate
to spur Brownfields redevelopment. Developers should be required to continue to exercise due
diligence and due care in investigating and constructing a Brownfields redevelopment project.
However, we believe that reasonably responsible parties (that is, in the dictionary sense of a
generally good citizen, not the CERCLA "Potentially Responsible Party" or "PRP" sense of
"responsible") should not be required to risk extraordinary legal liability exposure simply because
redevelopment at the site is subject, or potentially subject, to CERCLA.
Perhaps fortunately, concerns about possible liability to third parties have remained, in
the "real world", only concerns, which have not matured into actual documented legal and
financial liability. In the Brownfields program (to date), there has been no known significant
instance of environmental damage claims being brought against the redeveloper by an allegedly-
harmed third party. With the exercise of a few precautions, financial stakeholders in a
Brownfields project should be able to manage this risk such that the likelihood of its occurrence
becomes quite remote.
• Competent site assessment and due diligence before initiating clean-up and construction
activities can minimize the risk of third-party claims, by determining the facts about the nature and
extent of contamination of the property, and prospects for historical or prospective migration of
contaminants to off-site locations. Redevelopers should engage a well-qualified remediation
contractor and an experienced legal advisor to help minimize the risk of third-party claims
resulting from release and/or exposure caused by remediation activities.
• Indemnification provisions and/or releases from liability under specified circumstances,
often contained in major commercial contracts, also may provide some legal and financial comfort
to the major participants. (We note that the value of an indemnity is only as good as the balance
sheet of the party giving the indemnity, unless a separate escrow account is established to assure
funds will be available if the indemnified conditions arise. We note also that the State or the EPA
generally need not honor such an indemnification agreement among private parties, and can ignore
the agreement and impose liability against the original, liability-transferring party.)
• Insurance coverage also is commercially available, to cover third-party environmental
damage claims and expenses resulting from such claims.
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In any major construction project, third-party claims for personal injury or property
damage occurring off-site as a result of the construction cannot be precluded; however, the
incremental risk of environmental claims can be managed as described above.
We believe that EPA lacks legal authority to create a legal shield to insulate a
redeveloper against third-party liability. However, because we believe the fear of third-party
claims is an important perceived barrier, EPA should take reasonable steps to try to dispel the
perceived concerns.
We believe that EPA could help in some ways to deter a third party from filing a liability
claim against an "innocent redeveloper" who has satisfactorily cleaned up a site to EPA-approved
or State-approved standards for that site, or is making satisfactory progress towards clean-up.
We recommend that EPA encourage the use of no-action letters, "comfort letters",
and similar legal or quasi-legal documents, especially at the State level, to reduce the
likelihood that a third party may file a lawsuit that implicates the sufficiency of the clean-up
standards or the planned remedial activities. We also recommend that State environmental
agencies utilize similar documents for Brawnfields clean-ups where the clean-up is conducted
according to State standards and overseen by the State rather than EPA.
Assuming that such a third party would make its claims of injury or harm known to the
redeveloper before actually filing a lawsuit for damages, a redeveioper having such documents
from EPA or the State in hand would be in a better position to expeditiously assure the
complaining third party that EPA or the State had approved the health-related adequacy of the
clean-up standards and the planned clean-up activities, thereby helping to deter the third-party
from pursuing any claims.
We recommend that EPA check and confirm our understanding that there has been no
known significant instance of environmental damage claims being asserted (or being asserted
successfully, as the case may be) against the redeveloper by an allegedly-harmed third party.
If that is correct, EPA should disseminate that information to the private redevelopment and
banking communities, to help alleviate fears.
We recommend that EPA continue to work with the States to develop and implement
"model" comfort letters and similar documents for use with Brownfields redevelopers, in
order to make the documents as uniform and consistent as possible from site to site, State to
State, and Region to Region. To encourage uniformity (both in the use of covenants and
comfort letters generally, and in the specific terms therein) such "model" documents should
be referenced in the SMOAs.
We recognize that encouraging the use of uniform "model" documents may well encounter
some resistance from States that will wish to (and in some instances of State law, will be required
to) include provisions addressing individual State programs or policies. However, we urge EPA
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to strive for uniformity to the extent possible, because that will reduce the transaction costs and
uncertainties, and will raise the "comfort level", for the private redevelopment and investment
communities.
We also recommend that EPA provide financial assistance as needed to States that
seek to develop and implement "model" comfort letters and similar documents, because: (1)
we recognize that preparing such documents requires a case-by-case assessment of the
realities of the particular site and situation; and (2) the theoretical availability of such
documents that facilitate private-sector participation in redevelopment of Brownfields
properties is of no real-world benefit if States lack resources to assess the site-specific
situation and actually write such documents.
Addressing Potential Liability to Third Parties Through New Legislation:
As stated in the Board's letter to Administrator Browner dated March 31, 1997, we also
recommend that EPA actively support legislative reforms that would exclude innocent
purchasers from liability, thereby eliminating the need for prospective purchasers to negotiate
liability relief through covenants-not-to-sue and the like. (In this context, we use the term
"innocent purchaser" in its non-CERCLA, dictionary sense, meaning someone who purchases the
property, perhaps with knowledge of the existing contamination on the property, but who has no
legally binding relationship/privity with anyone who caused the contamination.)
Also, it may be politically feasible to establish, at the Federal or State level, legislation
insulating an "innocent redeveloper" against claims by third parties. Such legislation could include
a fund to which an injured third party must apply for compensation in lieu of seeking
compensation from an "innocent redeveloper". Such a legal shield and alternative compensation
fund should provide additional comfort to prospective redevelopers and their financial backers.
We recognize that legislation that provides protection from liability for new purchasers
may need to distinguish between protection from: (1) liability for third-party claims regarding
consequences of pre-existing, perhaps off-site, contamination for which the new purchaser was
not in fact responsible; and (2) liability for appropriate clean-up of the site pursuant to conditions
agreed to by the State (or EPA) and the new purchaser. We do not suggest that the new
purchaser should be totally immune from all environmental liability in all circumstances.
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BARRIER # 3: UTILIZING AVAILABLE FEDERAL FINANCIAL INCENTIVES
The Perceived Problem:
Many members of the private sector commercial real estate industry (which necessarily
would provide many or most of the developers who can undertake Brownfields projects) view
redevelopment of environmentally contaminated urban properties as insufficiently likely to return
a satisfactory profit on the capital investment involved.
Discussion and Remedy:
There are two principal categories of Federal finance-related issues affecting Brownfields
cleanup and redevelopment. The first concerns "up front" or near-term funding and financial
incentives for initiating and implementing a Brownfields project. The second concerns the long-
term financial consequences such as tax treatment of the redeveloped property upon later sale.
"Up Front" Federal Financial Incentives
/. Funding Through EPA
We recommend that EPA evaluate the various options for using available Federal
funding, including EPA funding, for Brownfields purposes. EPA should allocate its funding
in the most economically efficient manner feasible. EPA funding should be used to leverage
other sources of funding, to obtain "the most bang for the buck" in promoting and achieving
environmental clean-up and opportunities for economic redevelopment
As the Brownfields program matures, the issue of what level of EPA funding is
appropriate will be under debate. In the 105th Congress, bills including up-front funding
mechanisms (grants and loans) to assist Brownfields redevelopment have been introduced by both
the Senate Republican leadership (S. 8) and the Senate Democratic leadership (S. 18, introduced
by Sen. Lautenberg). The authorization levels proposed in S. 8 for a package of grants and loans
to aid in characterizing and remediating Brownfields may be a good indicator of what is currently
feasible:
$15 million in annual grants to identify and characterize contamination at
Brownfields sites;
'Note: This paper addresses Federal-level issues only. Comparable issues exist at die State and local
levels, including prospects for die availability of local industrial development bond financing, deferral or
forgiveness of local real estate taxes, etc.
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$25 million in annual grants to remediate Brownfields sites;
Grants may be leveraged with funds from other sources and used to capitalize local
revolving loan programs; and
$25 million in annual funding for States to create or improve voluntary clean-up
programs.
2. Other EPA "Financial" Functions: Coordinating. leveraging. Educating
We recommend that EPA pursue partnership efforts with the U.S. Department of
Housing and Urban Development (HUD), the Economic Development Administration (EDA)
in the U.S. Department of Commerce, and with the U.S. Departments of Labor and
Transportation, to coordinate, target, and leverage Federal funding and other incentives for
Brownfields redevelopment, as part of a Clinton Administration "urban initiative".
To that end, we recommend that EPA undertake to monitor and report periodically to
the Board and to the public upon the implementation — including specific results ~ of the
"Brownfields National Partnership " announced in May 199 7 by Vice President Gore.
EPA should encourage, at both the national and EPA Regional level, formation of inter-
agency coordinating committees or other mechanisms to harness, target, and leverage available
resources towards Brownfields projects. For example, HUD and EDA, in all regions, should be
urged to make Brownfields projects a priority or preferred recipient of Federal financial
assistance.
Grant monies provided by other agencies, such as the HUD Community Development
Block Grant Program (CDBG), and EDA Title I public works grants (for industrial parks and
infrastructure), could be other sources of funds for activities such as site assessment and clean-up,
with concurrence from those agencies and the local governments. Also, we recommend that
EPA urge all Federal agencies with programs providing incentives for investing in
redevelopment in Enterprise Communities and Empowerment Zones to give appropriate
priority to Brownfields sites and not disregard their redevelopment potential
Another category of "up front" assistance (although it is perhaps less desirable than actual
Federal dollars for site assessment and/or clean-up) is mortgage loan guarantees such as HUD
recently initiated for a project in the Chicago area under the "Section 108" loan guarantee
program, using the CDBG grant as collateral.
Also, EPA and the U.S. Department of Transportation should explore ways and
opportunities to encourage States to use "ISTEA" funding for renewing highway and road
infrastructure or mass transit to serve Brownfields redevelopment areas.
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Road and highway construction is another potential source of environmental liability if the
construction is near known contaminated sites, so private developers will tend to be reluctant to
undertake that construction due to concerns about incurring environmental liability as well as the
capital cost.
We recommend that EPA initiate and coordinate an inter-agency effort to catalog the
available sources for Federal financial assistance that can be targeted to Brownfields
redevelopment, and then undertake intensive efforts to publicize the availability of those
Federal resources to the commercial real estate industry. Cataloging Federal financial
assistance programs would be a logical first step towards developing the more comprehensive
"clearinghouse" described below.
We recommend that EPA establish a "Brownfields Redevelopment Clearinghouse"* to
educate developers and interested cities and others around the country. The Clearinghouse
should include financial and technical information, success case studies, etc. Disseminating this
"how to" information will promote the transferability of Brownfields successes.
We note that EPA now has the OSWER Outreach office, the Internet site, the Regional
Brownfields contacts, and the EPA-sponsored network of six university-based Environmental
Finance Centers (EFCs). In particular, the Great Lakes EFC at Cleveland State University
devotes nearly all of its time and activities currently to Brownfields. We believe that EPA needs
to carefully coordinate, focus, maximize the value of, and minimize potential dispersion of, its
Brownfields resources (meaning both valuable information resources and databases, and
knowledgeable staff), at existing EPA centers for Brownfields information and advice.
To that end, we recommend that EPA senior management commission an internal
"Brownfields Information Management Review"; Le., determine how best to harness and
make available to the private sector, interested States, and others the multiple, substantial
sources of Brownfields-related information currently extant at EPA. We envision a
management review that would seek to coordinate and synergize — rather than disrupt — the
operations of these several EPA entities, in the effort to establish the suggested Brownfields
Redevelopment Clearinghouse. EPA may conclude that the "Clearinghouse" function can be
performed best by coordinating the existing information centers and staff rather than by
designating one entity as "The Clearinghouse".
We also recommend that EPA more actively or more broadly promote the OSWER
Outreach office, the Internet site, and the EFCs to the intended audiences or "customers",
including members of the commercial banking and real estate development communities, to
educate the "customers" about the existence, purpose, and resources of the EPA Brownfields
program.
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We recommend that EPA include State and local governments and economic
development agencies and other governmental entities, and their financial resources and
incentives, in all these efforts wherever possible.
3. Reaching Private Financial Sources: Federal Banking Regulatory Agencies
We recommend that EPA encourage the Federal banking regulatory agencies (the
Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation, the National Credit Union Administration, and the Federal
Reserve Bank) to: (1) elevate the visibility of the Brownfields program within those agencies;
(2) assure that the regulations implementing the Community Reinvestment Act (CRA) give
banks and other Federally-regulated lenders who make loans to clean up and/or redevelop
Brownfields properties (Le., on-site clean-up or redevelopment) substantial credit for purposes
of meeting compliance requirements of the CRA; and (3) educate bankers about the
availability of the CRA credit
We recommend that EPA work with senior officials and communicators at the OCC,
OTS, FDIC, NCUA, and the Fed to educate the Government's bank examiners and other
regulators who are infrequent contact with private banking executives to emphasize the
national economic policy benefits (as well as environmental benefits) of facilitating
investment in Brownfields redevelopment projects.
The "lender liability" provisions of Pub. L. 104-208 should help to make financing of
private site investigation and clean-up more feasible by substantially shielding lenders from liability
under CERCLA (Superfund) and RCRA Subtitle I (underground storage tanks) to which lenders
have been exposed merely by holding a security interest in real property.
We recommend that EPA work with senior officials and communicators at the OCC,
OTS, FDIC, NCUA, and the Fed to educate senior executives in the banking and financial
industry that the ne\v statutory liability protections exist.
4. Near-Term Tax Benefits
Tax benefits and other incentives to developers and/or employers are currently available
for investments in qualified redevelopment and job-creation in designated Enterprise Communities
and Empowerment Zones. These incentives should help to stimulate Brownfields activity.
Additional financial incentives that would have a positive, "up-front" or "near term"
impact on individual Brownfields redevelopment projects have recently been enacted into law.
The Clinton Administration proposed a $2 billion tax incentive in early 1996, designed to
encourage clean-up and redevelopment of Brownfields sites. The Treasury estimates the tax
package would leverage $10 billion in private investment and could revive 30,000 Brownfields
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sites. Among other things, the Administration's proposal would allow developers to deduct fully
from their Federal taxes the costs of environmental investigation and clean-up at designated
Brownfields sites during the year the costs are incurred, instead of capitalizing the cost and
deducting it over some period of years on an amortized basis.
The tax relief bill signed by President Clinton on August 5, 1997 contains provisions that
essentially enact the President's proposal, for three years. (The "Taxpayer Relief Act of 1997",
Public Law 105-34, formerly H.R. 2014, at Title IX, Subtitles E and F.) The new law allows
redevelopers of certain, qualified Brownfields properties to deduct certain environmental
remediation expenditures in the year paid or incurred, rather than charge them to a capital account
and amortize them over many years. The deduction is available for abatement or control of
hazardous substances at a "qualified" site, which can include sites in Empowerment Zones,
Enterprise Communities, at the 76 EPA Brownfields pilot projects that were underway by early
1997, or in Census tracts that have a poverty rate of 20% or more and in certain industrial and
commercial areas that are adjacent to such Census tracts.
Both urban and rural sites may qualify for the deduction, if they meet the above
geographic criteria. Sites on the National Priorities List are not eligible.
The law requires the taxpayer to obtain, from the appropriate State environmental agency,
a statement that the property is in a targeted area and is eligible for the clean-up deduction due to
release or disposal of hazardous substances at the property.
The new law limits the availability of the deduction to a 3-year period, to eligible
expenditures incurred after the date of enactment and before January 1, 2001. The new law also
requires that the deductions for environmental remediation expenses would be subject to
recapture as ordinary income upon sale or other disposition of the property.
As noted above, the Clinton Administration had sought a permanent deduction, but in the
budget negotiations with Congress the decision was made to provide only a three-year deduction,
because of the need to balance the budget, i.e., to not forego too much revenue due to this and
other tax incentives. The incentive in the new law is estimated to be worth up to $1.5 billion, and
is expected to leverage about $6 billion in private investment, to return an estimated 14,000
Brownfields sites back to productive use.
We are advised that the Internal Revenue Service likely will issue some regulations to
implement these new Brownfields-related tax incentives. However, noting that the deduction of
eligible remedial expenses is available only through the year 2000, we also are advised that the
general view is that the statutory language is sufficiently clear that the private development
community can and should begin now to "do deals" that take advantage of the new deduction,
there is no need to wait for the IRS regulations.
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Long-Term Financial Incentives
Congress should evaluate the various options for using Federal funding and tax
incentives for Brownfields purposes, and should utilize the most economically efficient
techniques. Such tax incentives may turn out to be essential incentives to sweeten the deal for
commercial developers who have alternatives to build on non-Brownfields sites.
Among other things, Congress also should consider preferential long-term tax benefits for
Brownfields redevelopers, such as: (1) preferential treatment regarding (accelerated)
depreciation/amortization schedules; (2) imposition of lower capital gains taxes upon sale of the
Brownfields property; and (3) foregoing the recapture (recapture is currently required by Pub. L.
105-34), at sale or disposition of the property, of environmental clean-up costs that are allowed to
be deducted in the year incurred or paid.
Addressing Federal Financial Incentives Through New Legislation:
Many of the discussions above regarding Federal financial incentives for Brownfields
clean-up and redevelopment address (a) the possible use of EPA appropriations for various
Brownfields purposes and (b) the tailoring of Federal financial incentives such as the Internal
Revenue Code to encourage private investment in Brownfields. As those discussions inherently
involve either appropriations legislation or tax legislation, our recommendations for remedying
this perceived barrier through new legislation were provided above.
Congress also should consider, in effect, how it defines "Brownfields" for purposes of the
financial incentives. The new statutory tax benefits are targeted at designated Enterprise
Communities, Empowerment Zones, areas having greater than a 20% poverty rate and certain
adjacent industrial and commercial areas, and sites included as an EPA Brownfield pilot project
before February 1, 1997. Congress should consider whether "Brownfields" sites in other ,
geographic areas warrant similar special financial incentives for redevelopment. We recommend
that the Federal tax incentives be available to as wide a range of "Brownfields" properties, as
defined above at page Hi of this paper, as is politically feasible.
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BARRIER #4: OBTAINING PRIORITY CLEAN-UPS
The Perceived Problem:
To some of the main participants in a Brownfields redevelopment project, notably a
private-sector developer and its lender, "Time Is Money". The risk or fear of encountering delays
in cleaning up and redeveloping a site that is believed or known to be contaminated poses a
serious disincentive to becoming involved at any Brownfields site. One source of potential delay
is governmental inertia and other bureaucratic problems that delay the making of crucial decisions
such as approving zoning changes and issuing necessary permits.
Discussion and Remedy:
Many commercial real estate developers and financial sources are very wary of
environmental risk. "Horror story" anecdotes about companies becoming saddled with clean-up
liabilities under CERCLA/Superrund through innocent, routine corporate transactions definitely
have impacted business executives' thinking.
Also, all developers will know of delays caused by, for example, wetlands permitting
problems, and will be averse to any site that has delay-inducing environmental problems. Even if
the actual cost of addressing or "planning around" an environmental condition is not great, the
delay component is an independent factor in the developer's assessment of the viability of the
project.
Private developers and investors have other places to invest their time and money:
Greenfields projects. In the Brownfields context, the perceived environmental risks make it even
more important to control ~ preferably, eliminate — other common risks of encountering delay in
approval or construction of the project.
Particularly after the first round of Brownfields planning grants, many cities should be in a
position to develop a preferred wish-list for which sites get assessed, cleaned and re-developed
first. If funding can be made available for "Phase 1" and "Phase 2" site assessments, the process
of identifying desirable candidate sites should accelerate as sites that are confirmed to be clean or
minimally contaminated are identified.
Because Brownfields sites that are, or become, attractive economic redevelopment
properties are generally (but not always) not severely contaminated and because the economic
redevelopment of urban sites is presumably a high political priority, municipalities and States
should be able to commit to giving the Brownfields site redeveloper an expedited processing of
major elements of the project, such as:
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Review and approval of any zoning or variance required for the project;
Review and issuance of the building permit;
Determination of the clean-up standard for the site; and
Selection of the remedy required for the clean-up.
Any measures that EPA and all other involved agencies can implement to expedite the
decision processes regarding site/project/permits review and approval (for example, the use of an
ombudsman, or "one-stop shopping" for permits) should facilitate the project by reducing delay,
cost, and paperwork.
Also, for properties that are already owned by municipal governments, an accelerated
review process would expedite, for example, the sale of the land to a private redeveloper. This
would bring in immediate revenue to the municipality, facilitate economic redevelopment, and
enhance the city's long-term tax base. Also, the city would receive collateral benefits more
quickly, for example, if the redevelopment project included an associated restored park or
"greenway".
We recommend that EPA encourage State and local governments to establish
coordinated, "fast track" review and approval processes for redevelopment projects on
Bra\vnfields sites. EPA should amend its criteria for awarding Brownfields demonstration
grants (whetherfor planning, assessment, revolving loan funds, etc.) to give some preferential
consideration to cities or towns that have some type of "fast track" process to facilitate crucial
decisions and issuance of crucial permits. We recommend that the existence of a "fast track"
be a consideration in, but not a prerequisite to, awarding a grant
Addressing Obtaining Priority Clean-Ups Through New Legislation:
Because the procedures and processes that hinder expeditious redevelopment are
principally local land-use and regulatory laws, we see little if any opportunity for Federal
legislative relief for this perceived barrier.
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